Month: August 2018

As you know, we live in an environment where it’s “blink,” and you missed it. Still, there’s always an urgent need to keep on top of what is happening so that you can stay ahead in business. I own several companies and, candidly, I don’t think there’s a single day I’m not thinking about how to make things better and improve our competitive advantage in our industries.

A couple of days ago I read an article about a luxury yacht company that had been in business for generations, and although they had client orders on hand, in the tens of millions of dollars, they fired everyone and shuddered their doors. They were hemorrhaging money and not paying attention to the changing winds.

The reality is that I can sit here today and write what you want to be looking for in business trends and then a year from now, write the same sort of article with different ideas to keep an eye on as business and society evolve. Still, there are some areas that I think will remain constant and you should pay attention to in your company.

Always Pay Extra Attention to Millennials

For decades and decades, the “darling” of generations were the Baby Boomers because of their sheer size and buying power. As the Boomers are now seniors, the same can be said about Millennials. They will be, and already are, a force for years to come and they are the first generation that is pure digital natives. Your products and services should be marketed to them and how they think. By 2020, Millennials will have an estimated $1.4 trillion in spending power.

Get Comfortable With AI, IoT, and ML

What used to be buzzwords such as AI, IoT, and ML, are not anymore. They are not the future; they are the present. Most of you know about AI (Artificial intelligence), IoT (Internet of Things), but maybe you have not heard about ML (Machine Learning). Machine learning is when computers do things without being programmed to do it because they are learning it for themselves. Through machine learning, we are given self-driving cars, excellent web search tools, practical speech recognition programs and a host of other platforms. As technology evolves, all of these elements will play a more substantial part in life and business.

Remote Workforce

I have a preference for my team to be onsite, but for some functions and aspects of our work, these elements are outsourced. Currently 40{b2c334eadc11e85d85e7d69ea6071353c57eb82a7d535ea251e0a34fd19231a4} plus of American workers are doing some work remotely, without having to be present at their place of business all the time. This trend creates demand for adequately training remote employees through video conferencing platforms, especially for social media and programming positions. All that is required is a computer and Internet.

Get Past the Clutter

The way you brand your business is essential. People are drowning in data and information, and you have to be able to cut to the chase immediately. Branding, which encompasses the name, logo, etc., creates instant identification. With excellent branding, you are perceived as an authority, successful and trustworthy because you pay attention to the details. Also it makes prospecting easier. Customers find you. You can hire better talent. Candidates seek you out rather than looking to apply for a position with an unknown company. Because of branding, it is easier to create more businesses under the same name.

Opportunity Exists in Buying Businesses

There are more businesses for sale due to the retirement of the Baby Boomer and Millennials will be buying them and then reinventing the companies they buy. Keep an eye out for your competition because there’s always an opportunity in looking to buy an existing competitor. For instance, you can buy their entire client base, or perhaps they’ve excelled in e-commerce, and you’re able to bring that into your portfolio. I’ve successfully purchased some of my competitors, and it’s only helped my businesses grow.

In the surety underwriting business, we are forward looking. Bond decisions are based on a variety of factors including “The Four C’s of Bonding” (Read Secret article #5). Surety capacity levels are determined and used as a guideline to administer the account. That all makes sense.

However, the forward looking analysis makes assumptions – that may or may not be correct. If they are incorrect, the outcome could be devastating for the contractor and surety.

In this article we will delve into an aspect of evaluation used extensively by investors, but not so much by bond underwriters. It is called the Burn Rate.

Here is the internet definition:

Burn rate is the rate at which a company is losing money. It is typically expressed in monthly terms. E.g., “the company’s burn rate is currently $65,000 per month.” In this sense, the word “burn” is a synonymous term for negative cash flow.

It is also a measure for how fast a company will use up its shareholder capital. If the shareholder capital is exhausted, the company will either have to start making a profit, find additional funding, or close down.

Very interesting. The reason our underwriters use the Burn Rate is because of the assumption it does not make…

Think of how a typical surety line operates. The surety (the surety industry for that matter), assumes their client will have enough future work to fill the bonding capacity limits. But what if they don’t? Can we predict the company’s ability to survive with inadequate revenues and in the absence of profits? Would this not be an important measure of financial strength and staying power?

The Burn Rate enables us to find the company’s “Runway,” which is the time it can survive without new funds coming in.

Here’s how to calculate a company’s financial Runway, the time it can survive on existing capital. This is a hard core analysis that eliminates all expectation of new revenues.

The formula requires two elements:

Working Capital “As Allowed” by the underwriter’s analysis

Average monthly fixed expenses

Working Capital (WC), as you may recall in Secret #4, is a measure of the company’s short term financial strength. It calculates the assets readily convertible to cash in the next fiscal period. Every underwriter identifies this number during their financial statement review.

If future revenues are inadequate, what is the company’s survivability? The Fixed Expenses help us determine this fact. These are the expenses that don’t go away, even if there are no new revenues. Every month, you pay the rent, utilities, administrative staff, telephone, maintenance, insurance, etc. These expenses are coming regardless of how much or how little sales are achieved. In the absence of future revenues, it is Working Capital that must pay these monthly bills. The Runway is how long the company can operate in this mode. The Burn Rate reveals this survivability.

An actual client:

12/31 Working Capital As Allowed from the Balance Sheet = $1,099,000

1/13-12/31 Total Expenses from the Profit and Loss Statement (not including Cost of Goods Sold, aka Direct Expenses) = $1,243,000

Based on current expected cash flow, the company can cover it’s fixed (unavoidable) operating expenses for 10.6 months even if it has no income/ profits from new revenues. The Runway is 10.6 months. This measure of survivability can be compared from period to period, by year, or from one company to another.

Our national underwriting department brings this high level of expertise and willingness to all your bid and performance bonds.

We live in a world of immense technical innovation and data is something many of us are immersed in, and there are times when there seems to be too much of it. Other times, we’re seeing a lot of information, but it’s not being presented in a way that is relevant and provides us a chance to make informed decisions. As the owner of multiple companies and brands, I spend a lot of my time looking at data.

Data informs the strategic goals for my companies.

Data helps me to understand what’s working and what isn’t.

There’s a direct link between some data, such as marketing for instance, and the bottom line of my companies.

There isn’t a day that I don’t walk into my offices, and I’m not looking at multiple reports, particularly financial reporting and sales or even asking my team to provide me analytics on things, such as our social media results. Data spans the gamut, and I can slice and dice every area of my businesses and see how we’re performing.

Early Days

After I first when I started my holding company, there eventually came a time when the work of my team and I began to take off. All of the sudden I was asked for interviews and people wanted to speak to me and get my take on things. I always knew that as a CEO, it’s just not possible to be involved in every aspect and minute detail of the businesses. On occasion, I was asked a question that I couldn’t answer on the spot, although I was always able to provide at least some answer.

Dashboard Reporting

In those early days, I asked two of my team members to come into my office so I can tell them about the experiences I had been having in speaking to people outside of our organizations. I also told them that I was having trouble making strategic decisions because the information I needed was not the way I needed to digest it. Even though I was not part of every decision within the company, such as the lower level ones, I still needed to have critical information rolled up to me so I can understand the broader implications. And, it needed to be presented in such a way that it made my decision-making process effective. My team developed dashboard reporting for me that day which gave me the essential information about each of the business lines and also the totality of all of it.

Informed Discussions

As an example, I’ve had occasions where I’ve been asked about the number of followers on one of our social media platforms. Some people can consider it an irrelevant question that perhaps a CEO might not know, but that’s not the way it should be. As the chief executive, I should know the number of followers, clients, and issues that are outstanding for our brands, even if it seems minor. I may not need to know that the best hours for social media promotion for us, but I need to know the top-line information in all departments.

Old School Reporting

Dashboard reporting is an essential tool for business, and I ask my teams to create a lot of it internally. Yes, there are plenty of platforms today that give you their analytics, and that’s all well and good, but often it’s not what I need to know as CEO. If you’re the senior-most executive in your organization, don’t shy away from ad-hoc dashboard reporting that is prepared by your team members. Getting precisely the information you need–as you want to see it–is essential to making informed strategic decisions. And, the reality is that sometimes the ready-made tools out there are useful, but they’re not providing you the relevant data you want or presenting it in a way that you need to understand it.

Dashboard reporting provides clarity and insight to CEOs, so they understand information and can interpret it in a way that makes sense to them, in their role, and is not imposed due to the functionality of a software package or by others.

It’s something that’s heard all the time now: “They don’t make ’em like they used to” or “Another product made outside of the United States.” Indeed, to some degree, there’s a ring of truth to these sentiments; unfortunately, many areas of commerce – notably the aforementioned electronics sector – are being outsourced to countries such as China on a widespread basis, so much so that many consumers feel value has paid the ultimate price. Case in point: The home audio enthusiast market saw a resurgence of turntables over the past decade or so, driven by a millennial demographic just getting their feet wet in the “vinyl resurgence” pool, but in the mad scramble to compete and churn out these record players as fast as they were being purchased, many major companies outsourced their specs to Asia-based entities that ended up cutting corners to meet a price point.

As a result, more than a few series of turntables from this particular brand suffered from poor build, unreliable drive motors, design snafus such as warped platters and more – all of which compromise a vinyl playback system’s performance in critical ways.

Of course, this is just a broad, random example, but our point is that quality in manufacturing and services, especially in our current somewhat heated political atmosphere, should be first and foremost – a sentiment that has not been lost on President Donald J. Trump, who has given US manufacturing representatives a different viewpoint to consider when it comes to consumer manufactured products.

In short, President Trump wants American manufacturing to step up to the plate, and it begins and ends with “the Q word.”

Why should this be first and foremost when taken in a manufacturing context? It is easy to falter in an optimistic market and revel in manufacturing optimism; to be blunt, it is the only sustainable pillar that drives excellence in business. Value in a company that manufactures goods not only helps the economy meet customer and industry expectations, it can keep costs down. Managing excellence is crucial for small businesses in particular, because well-built products help to maintain customer satisfaction and loyalty while reducing the risk and cost of replacing faulty goods.

Let’s take a quick look at the primary elements of this subject:

• Meeting Customer Expectations – Customers expect a company to deliver great products, and when it doesn’t they quickly look for alternatives. Distinction is critical to satisfying customers and retaining their loyalty so they continue to buy in the future.
• Managing a Reputation – Excellence influences a company’s reputation, as poor build or a product failure (like the turntable example we mentioned earlier) can create negative publicity and damage a reputation.
• Meeting Industry Standards – Accreditation to a recognized standard may be essential for dealing with certain customers or complying with legislation.
• Managing Costs – Poor characteristics increases costs, as we alluded to, because without an effective control system in place a company may incur the cost of analyzing nonconforming goods or services to determine the root causes.

For manufacturing firms, it’s important to ramp up process training, management commitment and involvement in all teams when improving purity control, and it wouldn’t be a bad idea to take a look at suppliers, as well. Researching, studying and evaluating alone will improve this area – and parts – and top-shelf products equal sales for the long-term, all while eliminating consumer mistrust in manufacturing.

President Trump has set us on the right course… now we need to all do our part to improve US manufacturing.

In need of help because you don’t know where to start? CALL ME!

Qualaco, Inc. is a Houston consulting company that focuses on providing clients in the in manufacturing and service with quality management systems. The experienced and knowledgeable professionals work closely with clients to help them achieve ISO 9001 certification, and many other standards, the company’s primary mission in working with clients being to help businesses understand the value of aligning to an International Standard and the importance of Quality.